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Escalation Clauses - Where Do They Leave the Counterclaimant?

21 July 2017

Publication | France | Dispute Resolution | Arbitration

Article written by counsel Natasha Peter published in Kluwer Arbitration Blog on 21 July 2017.

In a judgment of 24 May 2017 (Biogaran v International Drug Development, case n° 15-25.457), the commercial chamber of the French Cour de Cassation (Supreme Court) considered the question of whether a counterclaimant is bound by the requirements of a “multi-tier” dispute resolution clause. The clause in question required the parties to mediate as a precondition to court proceedings, but the court ruled that the defendant could nevertheless pursue a counterclaim that had not been submitted to mediation.

Since at least 2003 (with the landmark judgment of a mixed chamber of the Supreme Court in case n° 0019.42), the French courts have been clear that escalation clauses are in principle capable of imposing negotiation, conciliation or mediation as a condition precedent to litigation or arbitration. However, they have been equally clear that these clauses will only have this effect if they are drafted in terms that are mandatory, unambiguous and sufficiently specific. The decision in Biogaran v International Drug Development is a novel application of this line of reasoning.

The case originated in a claim brought by Biogaran in the Paris commercial court for alleged non-payment of sums due under a pharmaceuticals contract. According to the contract terms, the parties were required to conduct amicable negotiations of any dispute for a period of 60 days. If this did not succeed, the dispute was to be submitted to a mediator who would have a further 60 days to attempt to resolve it, “failing which the parties would submit to the jurisdiction of the Paris court” (free translation).